Prepaid Rent and QuickBooks
Prepaid Rent and QuickBooks. I consider this a bit of a trickier transaction. Why? Because it involves a account that can be considered not the "norm". What type of account is prepaid rent? It is current asset account that reports the amount of future rent expense that was paid in advance of the rental period. The amount reported on the balance sheet is the amount that has not yet been used or expired as of the balance sheet date.
Prepaid Rent and QuickBooks: The Setup
This setup is easy. But you need to know the type. Go to accounting>chart of accounts>new. Create a new other current asset and name it Prepaid Rent. Next go to gear>products and services>service type item and then create an item that will post to this new account on your chart of accounts. Name it Prepaid rent and in the description line for your invoices, call it "Prepaid last month's rent" or any other words applicable for your business.
Prepaid Rent and QuickBooks: The Transactions and Flow
Let's start with collecting the rent, security deposit and prepaid rent. (To learn about security deposits, see this video). Just create an invoice for the pieces you are collecting. Use the rental item that points to your rental income for the rent collected for the first month's rent. Next use the item for the security deposit. Then lastly, the last month's prepaid rent item is used. Create the sales receipt or an invoice. If an invoice is used, record the payment. Each piece of the funds collected will post the the proper category on the chart of accounts.
Prepaid Rent and QuickBooks: Applying it
This next part is just as important as the above steps. Fast forward to the tenant's last month living in the apartment. They have already paid this rent to you. Go to + credit memo (under the customer transactions column) and create a credit memo. Use that item "Prepaid Rent" again. Create the credit memo. Apply it by going to +customer payment and apply it to the last month's rent invoice to clear it.
Last piece of advice: Check your reports
An important part of making sure all the working parts were handled properly is reconciling that prepaid rent account at year end. Just like the security deposit, the CPA will want an accounting of which tenant's prepaid rent you are holding. If a tenant lives with you over several years, that prepaid rent may sit their until their official last month as a resident in your building.
If you have any questions or would like to see a future video on another topic, please reach out to me on Facebook.